Germany’s income tax and social security burden has decreased for all income groups since 1986, according to a study by the Ifo Institute. Although the introduction of the solidarity surcharge caused a slight increase in tax burden from 1986 to 1996, it decreased after its reduction in the late 90s and through various tax reforms. Despite a slight increase in social security contributions, the overall burden is now lower than in 1986. For example, a single person with an average gross household income in 1996 of €27,100 saw their tax and social security burden reduced by almost 40%. In 2018, the average gross household income was €40,500, and the tax burden for singles with an average income decreased to 37% (-3%). The reduction in tax burden is even higher for singles and families with very low and high incomes.
Parents with high incomes usually reduce their tax burden by claiming child tax credits. To compare them with parents with low and middle incomes, the economists included the increase in child benefit, which is usually claimed instead of child tax credits for these income groups. When child benefit is taken into account, the tax burden for a family of four with an average income was 16% in 2018, compared to 19% in 1996. The reduction in tax burden is mainly due to the reduction in the entry tax rate (22% in 1986, 14% in 2018) and the top tax rate (56% in 1986, 42% in 2018). Only very high incomes above €275,000 have to pay the so-called “rich tax” of 45% since 2007. Additionally, people with this income still have to pay the solidarity surcharge, which was abolished for most taxpayers (90%) at the beginning of this year.
The study shows that Germany’s tax and social security burden has decreased for all income groups over the past 35 years. This is due to various tax reforms and the reduction of tax rates. The reduction in tax burden is even higher for singles and families with very low and high incomes. However, very high incomes still have to pay a higher tax rate and the solidarity surcharge.
